Tuesday, December 30, 2008

Bumpy Crop: Farming's Sudden Feasts and Famines

From the Wall Street Journal:

As Grain Prices Rise and Fall and Perhaps Rise Again, Growers Struggle to Navigate a New Age of Volatility and High Costs

Jesup, Iowa

Benjamin Riensche has just come off two of his best years in farming. But like growers all over the globe, he is in the midst of a more turbulent era of sharply rising and then suddenly falling prices.

Now the 47-year-old, who grows corn and soybeans across 10,000 acres in Iowa, fears he will incur losses in 2009 that would be his first red ink in 16 years. His revenue is falling, but the costs of seed, fertilizer and machinery have remained high. Mr. Riensche bought most of his supplies months ago, when grain prices were still high. Many of his suppliers are still trying to pass along the higher costs they absorbed in recent years for everything from metal and chemicals to natural gas. To lower his costs, he could idle land, but figures raising a crop at least gives him a chance to benefit if prices move back up, as some predict.

"I never thought the stakes could get so big," Mr. Riensche says. "We've gone from the nickel slots to world-class poker."

All this is happening even though the world has been producing more grain than ever. Demand has grown faster than farmers could increase their production most years of this decade, helping to drain grain reserves. Unusually good weather in most of the world this year is refilling grains stocks once again. But the situation could easily change. Some economists worry that the world will consume more grain than it produces by 2010, particularly if oil prices recover enough to make the production of ethanol from corn more profitable again....MORE